Will ACOs show financial returns?

Despite projected goals of saving $400 million in three years of Shared Savings and $1.1 billion in five years for the Pioneer Program, accountable care organizations (ACO) encounter skeptics on whether the financial benefits will outweigh the initial start-up costs and investments.

"It's far from clear who the winners are in the ACO," Jeff Goldsmith, president of consulting firm Health Futures Inc., and an associate professor of public-health sciences at the University of Virginia in Charlottesville, said in a Wall Street Journal article. "The ACO actually looks like a terrible business deal for providers. In order to get any shared savings, they will have to spend millions on consulting, systems, care managers and IT staff, give up a dollar in immediately reduced income, and maybe, if they check all the boxes right, get 50 or 60 cents back in 18 months."

Goldsmith noted that his colleagues have reported providers spending as much as $1 billion in ACO-related consulting and legal costs, even though Medicare payments--that is, their returns on investments--are fixed by law.

Tom Scully, former Center for Medicare & Medicaid Services (CMS) administrator and current partner at New York private-equity firm Welsh Carson Anderson & Stowe, said, "The start-up cost of a real ACO is probably $30 million and up in a midsize market."

CMS estimated it will take $1.7 million per ACO, based on a 2008 study of the Physician Group Practice Demonstration project. The American Hospital Association (AHA), however, estimated ACO start-up costs are between $5.3 to $12 million, depending on the hospital size.

In addition to legal and start-up costs, there also are other accreditation costs, should providers elect to use the voluntary National Committee for Quality Assurance (NCQA) ACO accreditation launched in November for an independent assessment before participating in the governmental Shared Savings or Pioneer ACO programs.

Even more, the Congressional Budget Office said in a controversial report released last week that care coordination and value-based payments (the premise for ACOs) failed to save Medicare dollars.

However, former CMS Administrator Donald Berwick, who oversaw the agency's efforts to structure ACOs, noted that ACOs are different this time around. He cited provider engagement as the motivation behind cost savings with accountable care.

"The ACO premise is different. Beneficiaries don't join an ACO; providers of care do," Berwick said in the WSJ article. "The ACO can earn extra money through gain sharing [sharing of savings resulting from collaborative efforts to provide care cost-effectively] with Medicare if the overall costs of care for the beneficiaries attributed to it are lower than predicted. But only if the ACO also meets stringent conditions of governance (clinicians, not insurers, run them), transparency and quality performance."

Scully responded to Berwick's optimism and said, "Don's vision is great, and who can't like what he has tried to do with ACOs--measure doctors and pay them for better outcomes. Except that the incentives are very small, the change will be slow, and we are just nibbling at real system reform."

For more information:
- read the WSJ article
- see the CBO report (.pdf)

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